LPL Force Diminished by Big Breakaway, Oppenheimer by Continued Attrition

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LPL Financial, the largest independent-contractor brokerage firm, ended its second quarter with more than 16,000 brokers in a sign of the continuing allure of the model, while the 181-year-old Oppenheimer & Co. in New York continued its long shrinkage by reporting Friday that it now employs just over 1,000 brokers.

It lost a net 28 brokers in the last three months, ending the quarter with 16,161. Excluding the exodus of Independent Financial Partners, a $1.2-billion-asset firm with 540 brokers that established its own broker-dealer in May, LPL would have added a net 161 advisors in the second quarter

Recruiting remains “solid” and is coming primarily from other independent broker-dealers, Chief Executive Dan Arnold said on the call.

Its total net hires over the past 12 months—372, excluding the Independent advisors— are expected to attract about $33 billion of former client assets to the firm. That will be a record inflow and reflects the growing allure of the firm’s independent model and its new brokerage and investment advisory affiliation options, Arnold said.

LPL this quarter is launching an “employee” model, seeded by its purchase of Florida-based hybrid brokerage firm Allen & Co. Allen has about 30 brokers overseeing $3 billion of customer assets.

Assets overseen by LPL brokers as of June 30 were up 30% from the year-earlier second quarter to a record $706 billion, with net new assets rising at a 2.3% annualized growth rate to $4 billion.

Overall, LPL reported a 23% jump in net income from the year-earlier quarter to $146 million. Revenue was up  7% to $1.39 billion while expenses trailed at a 5% growth rate to $1.16 billion.

LPL forgave $22.6 million in “transition assistance loans” to new hires during the quarter, up 25% from $18.1 million that amortized in the second quarter last year.

The average LPL broker generated $238,000 in annualized fees and commissions in the quarter, an increase from $231,000 a year ago, the firm said.

Oppenheimer as of June 30 had 1,036 brokers, down by 47 from 12 months earlier, in 94 branches. The company’s broker headcount is down 14%–or 163–from almost 1,200 at the end of the second quarter of 2016. Oppenheimer over the past several years has purged both advisors and field managers, and separately this year appointed one of its asset management veterans, Ed Harrington, to run its private client unit.

Oppenheimer’s earnings report attributed the year-over-year decline to its “emphasis on adviser productivity as well as retirements and attrition,” but in its 10-Q filing with the Securities and Exchange Commission the company repeated past statements that expansion will be key to the company’s growth.

“We are focused on growing our private client and asset management businesses through strategic additions of experienced financial advisers in our existing branch system…as well as deploying our capital for expansion through targeted acquisitions,” the firm wrote in a separate 10-Q filing accompanying its earnings release.

“The Company’s long-term growth plan is to continue to expand existing offices by hiring experienced professionals as well as expand through the purchase of operating branch offices from other broker-dealers or the opening of new branch offices in attractive locations….”

Second-quarter pretax profit in Oppenheimer’s private client group, its largest business unit that fueled 65% of its revenue last quarter, rose 29.5% from the year-earlier period to $43.4 million. Revenue was up 3.4% to $162 million.

The company’s asset management unit, which splits client advisory fees with the private client group, reported pretax income that rose 34.4% to $5.3 million and revenue up 5.2% to $18.6 million.  The company as a whole, which lost $1.8 million before taxes in its capital markets reported a 39.8% jump in second-quarter profit from a year earlier to $12.4 million.

Oppenheimer continued to whittle down the overhang of auction-rate securities it is obligated to buy and said it reduced its “high-cost” outstanding debt by 25% in the quarters. (On Friday, it announced that it will be redeeming $50 million of its $200 million of outstanding notes, paying a $1.7 million call premium this quarter but reducing its interest costs by $3.8 million annually.)

“Our reduced leverage and continued high level of liquidity will be advantageous as we look to expand our business,” said Chairman and CEO Albert “Bud” Lowenthal in a prepared statement. Lowenthal is the New York-based company’s majority shareholder.